Half of renters fear they won’t be able to pay their rent next year as 58% have seen it go up this year amid the cost of living crisis.
A study by specialist mortgage lender Market Financial Solutions found that 49% of tenants fear they won’t be able to pay their rent in 2023.
At the same time, 48% of landlords said they had increased rents for their properties due to rising interest rates and higher mortgage repayments.
Tenants in a hurry: 58% saw their rent increase this year in the context of the fight against the cost of living
However, more than half (56%) said they would give their tenants some payment flexibility.
The average rent in Britain recently soared to over £1,200 a month for the first time on record.
Typical values have reached £1,204 per month, according to figures from Hamptons estate agents for October. This is an increase of £80 per month, or 7.1% more than a year ago.
The rapid growth means the typical renter household now spends 44% of their after-tax income on rent, the highest share since the Hamptons’ records began in 2010.
According to the MFS survey, three-quarters of tenants (77%) say more needs to be done to control rental prices in the UK.
Last month, the Scottish Government introduced emergency rent freeze legislation in the country, which means that for most tenants rents cannot increase until at least March 31, 2023.
Although there have been calls from London Mayor Sadiq Khan for similar rent controls to be introduced in the UK capital, they seem unlikely to be heeded.
Paresh Raja, Managing Director of MFS, said: “It was a frantic and difficult year, during which the base rate rose by 2.9% and inflation reached 11.1%.
“Our new research shows that this economic turmoil has forced landlords to raise rents, and millions of people are worried about whether they will be able to pay rent next year. These are striking findings.
“However, our research also shows that the majority of owners are sensitive to the cost of living crisis; many have opted to freeze rents, while most are willing to be flexible on payments.
“It seems clear that honest and candid conversations are needed to ensure that tenants are not subsumed by rising prices and that landlords can afford to repay their debt.
“Inflation and interest rates hurt different people in different ways – and while 2023 offers hope that both pressures will ease, we need to ensure there is support for those struggling. financial difficulties in the current climate.”
Rising: Rents rose 3.2% in the third quarter of the year, down slightly from growth in the second, according to Rightmove
For homeowners, affordability is also deteriorating. Along with residential mortgage borrowers, they have seen mortgage rates rise in recent months.
>> Homeowners can check the latest mortgage rates using the This is Money calculator
Even before the September mini-budget, which rocked financial markets, the average two-year rental home loan rate had risen 1.63 percentage points in two years, according to figures from Moneyfacts. It fell from 2.84% in September 2020 to 4.47% at the beginning of September this year.
They were also hit by Jeremy Hunt’s fall statement, in a capital gains tax raid that will see the typical property investor lose £2,600 when selling a house whose value has increased.
Tax burden: From April 2024, the average homeowner paying the highest rate will pay £2,610 or 12% more in CGT when selling a house that has increased in value
This is the latest in a series of tax measures targeting homeowners in recent years. Between 2017 and 2020, the government phased out tax relief on rental property loans.
Previously, homeowners could deduct all of their mortgage interest from their tax bills.
This meant that a landlord with mortgage interest payments of £400 a month on a property rented for £1,000 a month would only pay tax on £600 of that income.
But that system has been replaced and they only get a 20% tax credit, which is a blow to high earners who pay 40% income tax.
The government also introduced a 3% stamp duty surcharge for property owners buying new properties in 2016.
New Energy Performance Certificates (EPC) legislation is also being introduced, meaning that from 2025 rental properties must have a minimum EPC of ‘C’. Today, only four out of ten households reach this required level.
Indeed, older properties – many of which are rented out – tend not to have well-insulated walls or roofs and to have drafty windows. The cost of renovating Victorian properties can run into the tens of thousands of pounds.
There are also fears that a tenant reform bill, due to be rolled out as early as next year, could remove a clause from ‘Section 21’ that allows no-fault evictions.
All of these changes have led landlord groups to warn of an exodus of private landlords from the market, which could further increase demand and drive up rental prices.
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